Hi Stephen,
Really sorry to hear you have the misfortune of being subject of this lousy piece of legislation. Is there no way you can join a club and retain the Challenger? I had one years ago and wish I'd kept it.
As to value, £175 from a dealer is not a bad offer. As has been said on this thread, a private sale could net you a little more, so you could always try and advertise it on the sales section of this site (I think you need to have a minimum number of posts before you can post a sales thread though).
Best of luck, whatever you decide.
John
Currently looking for Baikal Makarov pistols with the following prefixes to the serial number: 98, T01, T09, T21, T22
Prefer boxed or cased but will consider loose examples too.